Chapter 13 bankruptcy can be used by debtors who are partially able to pay some creditors. If the debtor is ready, willing, and able to pay creditors with extra money after his or her living expenses are paid, Chapter 13 provides a way for the debtor to restructure their loan agreements and start fresh making new payments under the revised plan, while keeping their property.
After the Chapter 13 bankruptcy plan is complete within the three to five year time period required, debt is discharged. However, there are some exceptions.
Not all debt will be discharged under Chapter 13 bankruptcy plans. Debt that will not be discharged are claims for child support and spousal support (alimony), educational loans, drunk driving liabilities, criminal fines and restitution obligations, certain obligations that are long-term in nature, like home mortgages that extend beyond the term of the plan, and any debts not provided for in a wage-earner plan.
Child support and spousal support is not discharged in bankruptcy because the benefit was never for the debtor; it belongs to the child or the spouse. The 2005 revisions to the bankruptcy code explicitly made the collection of child support payment of the highest priority by specifically exempting it from Chapter 13 bankruptcy discharge.
Moreover, a Chapter 13 case may be dismissed if a debtor fails to make child support payments that become due after bankruptcy is filed. If the failure to pay is not deemed by the court to be excusable, the bankruptcy will be closed. A Chapter 13 bankruptcy must certify that the child support payment has been paid in full or that the Chapter 13 bankruptcy plan provides for repayment of the child support accrued before the filing.
The duty to pay child support if a bankruptcy is involved or not, is absolute. The duty is not dependent on whether the custodial parent or law enforcement is actively pursuing payment.